New Delhi: As another geopolitical storm brews in the Middle East—this time between Israel and Iran—India finds itself yet again on the edge of an economic spillover it is ill-prepared for. The headlines may be dominated by distant airstrikes and diplomatic stalemates, but let’s not mistake geography for insulation. If Brent crude barrels past $80 and stays there, the consequences for India’s economy won’t be theoretical—they’ll be painfully real.
Yes, Crisil Ratings and other forecasters are quick to assure us that the current impact is “limited.” India’s trade with Iran and Israel, after all, is a mere blip—less than 1% of our total trade volume. But to read the situation solely through a trade lens is to miss the forest for the trees. This is not about direct exposure; it’s about indirect dependence. And India’s single biggest vulnerability remains unaddressed: energy.
Nearly 85% of India’s crude oil is imported, much of it routed through the Strait of Hormuz—a strategic chokepoint Iran could disrupt without firing a single missile. Already, Brent crude has jumped 15% in June, reaching $76 per barrel. For a country where every $10 spike in oil prices can widen the current account deficit by 0.3% of GDP, this is not just volatility—it’s a warning shot.
India has been here before. In 2012, UPA-era oil spikes sent fuel subsidies ballooning. In 2018, the Modi government faced uncomfortable questions about retail fuel pricing. Yet, here we are in 2025, with little to show in terms of energy hedging, strategic stockpiling, or serious investment in alternative supply routes. Our vulnerability remains embedded, institutionalized, and disturbingly normalized.
The RBI’s own analysis points to what lies ahead: a 10% rise in crude oil (if fully passed on) raises CPI inflation by 30 basis points and reduces GDP growth by 15 basis points. When you consider that petroleum products alone account for over 26% of India’s merchandise imports and influence more than 4% of CPI, the risk to macroeconomic stability is obvious—even before factoring in fiscal impacts via subsidies or currency depreciation.
Yet policymakers are still in “wait and watch” mode, offering bromides about resilience and diversified trade hubs. But diversification doesn’t inoculate you against oil shocks. Indian refiners, airlines, chemical companies, and even fertilizer units remain tightly linked to crude derivatives. Upstream oil producers may enjoy a short-term windfall, but the rest of India Inc—especially downstream refiners, paints, tyres, and aviation—will absorb the cost in blood and balance sheets.
And then there’s the issue no one wants to talk about: retail fuel prices. Political sensitivity ahead of key state elections may delay the inevitable, but if international prices continue their climb, a choice looms—subsidize and swell the deficit, or pass through and risk public backlash. There’s no painless middle ground.
What makes this moment particularly dangerous is the false sense of security. India’s economy has shown signs of resilience post-COVID. Forex reserves are healthy, inflation has moderated, and the fiscal math looks manageable—for now. But that can change fast. The economic damage from sustained oil price elevation is not immediate, but it is cumulative and corrosive.
Worse, the energy debate in India remains stuck in a reactive mode. Strategic reserves are underutilized. Green transition plans are ambitious on paper but chronically underfunded. The private sector is focused on quarterly survival, not systemic mitigation. And the government, still addicted to excise revenues from fuel, has little incentive to drive down dependence in real terms.
If India wants to avoid another imported crisis, it must stop reacting and start planning. That means accelerating energy diversification with genuine urgency. It means insulating critical supply chains—like LNG and fertilizers—from geographic chokepoints. And it means confronting the hard fiscal trade-offs now, not when Brent hits $100.
The Middle East may seem far away, but in energy terms, it’s our backyard. The crisis brewing there isn’t just about Iran and Israel—it’s about how long India can pretend that crude oil won’t keep coming back to haunt its economy. We’ve danced on the edge of this cliff before. Maybe this time, we should consider stepping back.